Ask Brad: Should Advisors Use More Than One Custodian?

This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.

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When guiding advisors on how to transition their practices to the RIA model, this is a question I commonly address.

It applies to existing RIAs as well.

With an exception for a few business models (fee-for-service only), RIAs need at least one custodial partner. These firms provide custody of your client’s assets.

Unlike a broker/dealer relationship in which you are formally “affiliated” or “registered” with the broker/dealer, a custodian is a solution provider to the RIA (providing custodial services). There is no affiliation or shared ownership between the two parties. Nor would you want there to be, to protect the integrity of the RIA/custodian relationship.

In the broker/dealer space, you would be registered with one broker/dealer at a time. There is no path where you would be a registered representative of, for example, two wirehouse firms at once, both for competitive reasons and due to various regulatory challenges of such an arrangement.